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Social Security is one of the biggest financial bonuses of aging. Once you claim benefits, you get a guaranteed monthly income for the rest of your life.
While Social Security is one way to fund your retirement, it isn’t and shouldn’t be the only way. That’s because Social Security is meant to replace part of your income — not all of it — when you stop working. Because of this, you’ll need to figure out how much income you’ll need or want in retirement. And that starts long before your golden years.
How much do I need to save for retirement?
Not everyone has the same expenses and income during their working years, so they aren’t expected to have the same retirement budget. Because there are so many moving factors — including health, life expectancy, family support and more — how much you need to save for retirement depends on your planning and expectations.
You can use a retirement plan calculator to get an estimate of how much you should have by the time you retire. While you may not know the exact answers of when you plan to retire and how much you think you’ll spend, start inputting some figures to see where you’ll land.
Having $1 million in retirement was once standard advice, but not everyone needs to save $1 million to survive retirement. Some folks may need way more, while others don’t. There’s a chance you may only need $500,000 or $750,000 at retirement alongside your Social Security payments.
It’s OK to play with figures to see what you come up with down the road. Think about your monthly expenses now compared to what you think you’ll pay in the future. For instance:
- Do you plan on having a home payment, which might take up a significant portion of your income right now?
- Do you think you’ll downsize to a smaller place and lower monthly housing costs?
- Are you factoring in health-related costs, such as increased doctor appointments, home health care, treatments and more?
Some folks may need more money for assisted living, while others might need more money for rent or mortgage payments. Others may not have high monthly expenses, so what you spend during retirement could be much less compared to others.
Why do I need retirement savings if I’m getting Social Security?
Social Security isn’t meant to replace all of your income, so it’s important to avoid the mindset that Social Security will be enough to fund your retirement.
Say you expect your monthly expenses to be around $5,000 in retirement. This includes housing (such as a mortgage or rent), utilities, health care and medical expenses, food, transportation and other necessities. Social Security estimates your monthly payout to be $2,000 if you retire at 67, your full retirement age. You’d be short $3,000 a month with just Social Security.
If your expenses may exceed your Social Security payout, you’ll need to find the extra income somewhere. That might look like increasing your retirement savings now, working in retirement or retiring later to maximize your Social Security benefits.
There’s also longevity risk. One-third of Americans live until 90, and 14 percent reach 95, according to the Social Security Administration. Social Security will make regular payouts until you die, like some retirement annuities. But that means the longer you live, the more you’ll spend — and the more you’ll need to save now. Otherwise, you might outlive your savings.
Bottom line
It’s not too late to take a deep dive into your projected retirement journey. Audit your retirement accounts and, if you have a spouse, see what they have as well. Check to see how much you’re contributing and your expected return on investments. Make sure you review the details of your accounts to see if you’re overspending or paying unnecessary fees.
You may need extra help with your retirement plan. Asking a trusted, fiduciary financial advisor could be an option, especially if you’re not sure what to do next.
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